Japan Industrial Output Falls as Korea Confidence Sinks: Economy

Japan’s industrial production unexpectedly declined and South Korean manufacturers’ confidence dropped to a three-year low, building the case for extra monetary and fiscal measures to aid growth.

Production fell 0.1 percent in June from May, when it slid 3.4 percent, Japan’s Trade Ministry said today. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent gain. The South Korean confidence index for August was at 70 after 81 for July, the central bank said.

The signs of weakness kick off a week that UBS AG says will be among the year’s most important for financial markets, with the U.S. Federal Reserve and central banks in the U.K. and the euro region meeting to consider fresh stimulus efforts. The Reserve Bank of India will release its monetary policy decision tomorrow as it weighs inflation risks against the weakest economic growth since 2003.

“It’s increasingly likely that the Fed and European Central Bank will ease further by September,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, the government may implement a supplementary budget by September, with the central bank expanding asset purchases, Adachi said.

Today’s Korean data followed a slide in a measure of the nation’s consumer confidence.

South Korean Finance Minister Bahk Jae Wan said the economy is in a “difficult” situation. “I will do everything I can to find a solution for the sluggish domestic economy,” Bahk said today in a speech to government officials in Gwacheon.

Labor Figures

Besides the central-bank policy meetings, U.S. jobs data due Aug. 3 will be key, said Mansoor Mohi-uddin, managing director of foreign-exchange strategy for UBS in Singapore. Fed officials meet on July 31 and Aug. 1 after already pledging to keep the benchmark interest rate low until late 2014.

Asian stocks rose for a third day, with the regional benchmark index extending the biggest gain in a month, on optimism that ECB President Mario Draghi will make headway. The MSCI Asia Pacific Index gained 0.8 percent as of 11:07 a.m. in Tokyo.

Draghi, who triggered a global equity rally by pledging to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2. He meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.

Spanish GDP

Spain, which is being pushed closer to a full sovereign bailout, releases second-quarter gross-domestic-product data today. The Spanish central bank said July 23 that the recession probably deepened in the period, estimating that GDP fell 0.4 percent. A measure of euro-area confidence is also due.

In Japan, the yen’s strength is undermining a recovery that has been supported by government spending on earthquake reconstruction and incentives to purchase fuel-efficient cars. The currency rose more than 6 percent against the dollar since mid-March, hurting exporters such as Canon Inc. (7751) and Nintendo Co. The yen was at 78.41 per dollar as of 11:08 a.m. in Tokyo, and last week reached an 11-year high against the euro.

Indian policy makers are trying to preserve an expansion that cooled to a 5.3 percent pace in the first quarter of this year. Most analysts forecast no change to interest rates tomorrow. The central bank will release a report on the economy today.

Production Trend

In Japan, the government downgraded its assessment of industrial production for the first time since September, saying output is in “a flat trend.” Production of cars for overseas fell in June, it said. Last week, government reports showed that consumer prices unexpectedly declined and retail sales rose less than economists forecast.

While government subsidies for purchases of fuel-efficient cars have bolstered consumer spending and production, those gains may fade in the coming months. Mizuho Securities Co. sees the program expiring by mid-August.

Japan’s economic growth probably slowed to an annual pace of 1.6 percent in the three months ended June 30 from a 4.7 percent expansion in the first quarter, according to the median forecast of economists surveyed by Bloomberg News.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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